Beverage School Summer 2023 Understanding Route to Market 1920x1080 MP4
Summary
TLDRThe speaker at a beverage industry event emphasizes the importance of understanding distribution for beverage entrepreneurs. He outlines various distributor types, the significance of natural specialty distribution, the role of brokers, and the challenges of selling to retailers and consumers. He advises focusing on the right accounts, managing margins, and being strategic about slotting fees. The presentation concludes with insights on achieving success in the competitive beverage market.
Takeaways
- 📹 The speaker emphasizes the importance of the initial part of the show, which focuses on educating new beverage entrepreneurs and providing refreshers for others.
- 🎥 Presentations will be recorded and made available for later viewing, and there will be no direct Q&A after each presentation but rather a group Q&A session at the end.
- 🏆 Bill Sipper, the first presenter and managing partner at Cascadia Managing Brands, discusses the various types of distributors and their roles in the beverage industry.
- 📈 DSD (Direct Store Delivery) distributors are highlighted as the most competitive but also the most demanding, requiring exclusive contracts and buyouts.
- 🌿 Natural specialty distributors are noted for their slightly lower barriers to entry and their appeal to a more premium customer base.
- 📉 The script warns about the potential for high deductions in the natural specialty channel, which can significantly reduce payments to suppliers.
- 🏪 Convenience store distributors are praised for their wide coverage but criticized for not merchandising products effectively.
- 📊 The speaker stresses the importance of understanding the different sales pitches required for various distribution channels, from supermarkets to food service.
- 💼 The role of brokers is underscored, particularly in securing pre-commitments from chains, which are crucial for getting products into distribution.
- 💵 Margins vary widely among distributors and retailers, with DSD typically offering around a 33% margin, while supermarkets might work on a 30-35% margin.
- 💼 The script concludes with a reminder of the importance of persistence and strategic growth in the beverage industry, as well as the reality of the financial investments required.
Q & A
What is the primary focus of the speaker's presentation?
-The speaker's presentation primarily focuses on educating new beverage entrepreneurs and providing insights into the distribution process for CPG (Consumer Packaged Goods) companies, including the different types of distributors and the considerations involved in choosing them.
What does the acronym 'DSD' stand for in the context of the presentation?
-In the context of the presentation, 'DSD' stands for Direct Store Delivery, which is a type of distribution where distributors not only deliver products to stores but also merchandise them, ensuring the product is well-presented on the shelves.
Why are DSD distributors considered the best but also the most challenging to work with?
-DSD distributors are considered the best because they merchandise the stores, ensuring the product remains on the shelves. However, they are also the most challenging to work with because there are fewer independent DSD distributors, they often require exclusive contracts, and they may demand a buyout.
What is the role of natural food brokers according to the speaker?
-Natural food brokers play a crucial role in getting commitments from independent stores, especially when trying to get products into natural and specialty channels. They help secure pre-commitments from stores, which are necessary for some distributors to take on a new product.
What are the potential financial pitfalls of working with natural specialty distributors?
-The potential financial pitfalls of working with natural specialty distributors include high deductions that can significantly reduce payments on invoices, sometimes leading to receiving a much smaller payment than the invoiced amount.
How does the speaker describe the evolution of a beverage brand's distribution strategy?
-The speaker describes the evolution of a beverage brand's distribution strategy as starting at a certain point (Point A) and having the goal to reach another (Point Z), with many stops in between. It's an evolutionary business where one might not be ready for certain types of distributors like DSD initially but may progress to that stage over time.
What is the importance of creating success stories for a new beverage brand?
-Creating success stories is important because it helps to build a brand's credibility and can be used to convince larger chains to carry the product. It's about breeding success from smaller accounts and using those achievements to negotiate with bigger accounts.
What is the typical margin that DSD distributors and retailers work on, according to the speaker?
-The speaker mentions that DSD distributors typically work on a margin of 33%, while retailers can vary but are commonly around 30-35% for supermarkets, 40-45% for convenience stores, and 45-50% for drug chains.
What is a slotting fee in the context of supermarket distribution?
-A slotting fee is a payment made by a supplier to a supermarket chain for the privilege of having their product stocked. It secures shelf space but does not guarantee that the product will be placed on the shelves.
Why is it crucial for a new beverage brand to select the right accounts for distribution?
-It is crucial to select the right accounts because not all stores within a chain may align with the brand's target demographics. Distributing to stores where the brand is unlikely to sell well can lead to wasted time and resources, including slotting fees.
What advice does the speaker give regarding the startup phase of a beverage brand?
-The speaker advises that most startups do not make money on the products they sell initially and that the real opportunity for financial success often comes from an exit strategy, such as being acquired by a larger company.
Outlines
🎤 Introduction to Beverage Entrepreneurship
The speaker opens the show with enthusiasm, highlighting the importance of the initial segments of the program, which are designed to educate new beverage entrepreneurs and provide refreshers for others. The speaker mentions that the presentations will be recorded for later viewing and outlines the structure of the event, including the absence of Q&A after each session but the availability of speakers at tables for questions afterward. Bill Sipper, the managing partner at Cascadia Managing Brands, is introduced to discuss distribution perspectives for CPG companies, emphasizing the company's involvement in various aspects beyond sales, such as marketing, operations, logistics, and social media.
📈 Navigating the Distribution Landscape
Bill Sipper delves into the different types of distributors in the industry, with a focus on DSD (Direct Store Delivery) as the most competitive and beneficial for keeping products on shelves, albeit with the challenges of exclusivity and cost. He discusses the decline of independent distributors and the shift towards chain authorizations. The presenter also covers natural specialty distribution, which has a lower barrier for product entry and targets a more premium customer base. The importance of pre-committed orders and the role of natural food brokers in securing these commitments are highlighted, along with the cautionary note on the potential for high deductions that can impact profits.
🛒 The Role of Distributors and Retailers
The paragraph emphasizes the various distributor types, including convenience stores, wholesalers, food service distributors, and direct retail channels like Walmart and Costco. The challenges of selling on Amazon are mentioned, along with the hybrid model that combines elements of different distribution strategies. The speaker outlines the distribution channels and the roles of brand owners, distributors, and retailers in the supply chain. The importance of understanding the value proposition for distributors and retailers is stressed, as they are primarily concerned with what's in it for them, such as margins, promotions, and incentives.
📊 Sales Dynamics and Margins in Distribution
This section discusses the importance of selling to distributors and retailers differently than to consumers, focusing on what's in it for them, including features, benefits, and the value of the product. The speaker uses the analogy of UPS and FedEx to illustrate the delivery focus of most distributors, who may not have the time or resources to sell products effectively. The need for brand owners to be prepared to sell and train salespeople is highlighted, along with the idea that success breeds more success. The paragraph also covers typical margins for DSD distributors and retailers, and the financial realities of slotting fees and the necessity to choose the right accounts for a brand.
💸 Slotting Fees and Strategic Distribution
The final paragraph addresses the reality of slotting fees, which are payments to supermarket chains for shelf space. The speaker shares experiences and insights on the challenges of securing distribution and the importance of being strategic about where to allocate resources. The focus is on selecting the right accounts that align with brand demographics and being prepared to say no to opportunities that don't fit. The discussion also touches on the financial aspects of running a beverage business, including the reality that many startups do not make money on their products and the importance of having enough capital to sustain the business until an exit strategy, such as acquisition, can be realized.
Mindmap
Keywords
💡DSD
💡Beverage Entrepreneurs
💡Brokers
💡Slotting Fees
💡Demographics
💡Natural Specialty
💡Convenience Stores
💡Distributor Presentation
💡Critical Mass
💡Exit Strategy
💡Success Stories
Highlights
Introduction to the show and agenda
Presentations will be recorded for later viewing
No Q&A after each presentation, but opportunity to ask speakers at tables
Importance of the first steps for new beverage entrepreneurs
Bill Sipper introduces Cascadia Managing Brands
Cascadia's involvement in marketing, operations, logistics, and sales
Different types of Distributors in the industry
Advantages and challenges of DSD Distributors
Importance of natural specialty distribution for new products
Challenges of getting pre-commitment from stores
The role of natural food Brokers in distribution
The impact of deductions on payments in the distribution process
Different channels and their corresponding distributors
The role of brand owners in the distribution process
Importance of creating success stories for brand growth
Margins worked on by Distributors and retailers
Understanding slotting fees and their necessity
The reality of slotting fees in convenience stores
Selective distribution based on brand demographics
The financial reality of starting a beverage business
The importance of capital for brand survival and growth
Contact info provided for further questions and resources
Transcripts
[Music]
it's a pleasure to see you all here for
another great year of the show and this
is really one of my favorite Parts
because beverage school is just a quick
really uh beginning part of our agenda
today we have a lot of great stuff
coming up but I think in terms of
pound-for-pound the information that uh
you're going to get the things that we
like to provide in terms of these first
steps for for uh new beverage
entrepreneurs and people just looking
for a little refresher is really one of
my favorite parts of the show so just a
few housekeeping things before we get
started um these presentations will be
recorded
um so we will have those available for
you to view afterwards uh we're going to
go pretty quickly through our 20-minute
sessions here there will not be any Q&A
directly after each presentation but at
the conclusion of our speakers we're
going to open up these tables as you see
here where you guys are standing or
sitting uh with these signs and um each
of our speakers is going to be a table
host so you can ask your questions there
um we'll have plenty of time for people
to move around and and get all your
questions in then so uh without further
Ado i' like to get things started and
our first presentation is from Bill
sipper who's the managing partner at
Cascadia managing Brands Bill thank you
so much come on
up good morning how are
you I feel like being the first one up
at 7:45 is a little bit scary so just
I'm really happy everybody showed up
this early cool um so we're going to
talk about things that you need to know
from a uh distribution perspective as it
relates to cpg companies whether you're
a food company Beverage Company Etc um
we are a brand management company that's
kind of a hybrid term a lot of people
will say oh you are a master broker not
really because we get very involved in
the marketing the operations the
logistics the Amazon the social media so
there's a lot going on behind the scenes
as well as uh what we do in sales but we
are definitely known for our uh sales uh
there are several types of Distributors
uh in this industry the best and most
competitive is
DSD uh the good news is DSD they
merchandise the stores for you um they
do a much better job of keeping your
product on the shelves the bad news is
there's not many Independence left you
know even the independent Coke and Pepsi
Distributors have slowed down the
Budweiser Distributors are really
looking for chain authorizations before
uh they put you into their system so it
it is the best it's the the most
expensive they will require an exclusive
contract they will require a buyout um
but if you can get there at some point
and this business is very much an
evolutionary business you start in point
a and your goal is to get to Point Z but
there's a lot of stops in between and
you may not think that you're ready for
DSD today but you might be one of the
channels or the distribution areas that
a lot of these companies go through is
natural specialty and natural specialty
is important because they have a
slightly lower uh threshold for what
products they will take and their their
customer is somewhat of an elevated
customer you're not dealing with you're
not dealing with the Costco customer per
se you're dealing with people that are
in a store that already understand
they're going to pay a premium price Etc
although that's a complicated business
too
because again they want you to get a
chain if you don't have a like if if you
get Sprouts Khe will take your product
in every warehouse but if you don't have
Sprouts they're going to want you to
either get a small chain or get 30 to 50
pre-commit well how do you get 30 to 50
pre-commit if you're a one person
organization you hire natural food
Brokers natural food Brokers are
probably the only area that I've ever
find found that W with some exceptions
that that Brokers add value to what you
know you're trying to do and they go out
and they go to all these independent
stores like you see in New York City and
uh or LA or wherever and they get a
commitment if UNFI or k he take the
product uh we will distribute the
product now that's the good news it's
easier to get in the bad news is the
deductions will kill you if you're not
careful it's not unheard of of to have a
30,000 invo $30,000 invoice and receive
a $2,000 payment and there's all these
Bill backs so you have to have somebody
that knows the system and and you have
to know what you're promising them when
you sign up in the first place and then
you have convenient store Distributors
and we use uh we use two right now mlan
and uh I just drawing a blank on the
other one and the the the strength is
that if you get 7-Eleven they going to
cover every single store not a problem
the bad news is they don't merchandise
they don't have people in the stores so
if your delivery goes in on Monday it
may not get on the Shelf until Wednesday
and if it gets on the Shelf Wednesday
and sells out on
Thursday you're not there for the
weekend the buyer doesn't care that mlan
didn't merchandise the shelves the buyer
just cares that he lost those sales so
if you can't get him those sales he will
find somebody else that
will uh and then you have have
wholesalers like superv value that sell
to supermarkets DP and companies like
that you have food service Distributors
which are a little more complicated for
most brands um in terms of you know
they're not going up and down the street
to Deli they're going to restaurants the
Caterers and things like that hotels so
you need a slightly different sales
pitch there you can go direct to uh
retail like Walmart and Target and
Costco uh there are some downsides to
that about about four years ago we got
in the Amazon business in a big way and
four years later we're kicking ourselves
uh because it's really hard to make
money on Amazon with all the shipment
fees these days but that is another
another type of distribution and then
you have a hybrid which is a lot more
common than anything else where you have
a little bit of Amazon a little bit of
DSD in some areas you have natural
Etc and then there the types of channels
kind of lined up with the distributor
you have traditional Supermarket you
have natural and Specialty uh you have
convenience stores drug Club Mass uh
Food Service you have military and you
also have you know digital to
Consumer so what are what is everybody's
role here so you're a brand owner you
are 90% of the time going to sell your
product to a distributor who's then
going to take that product and sell it
to a retailer who's then going to take
that uh product and sell it to a
consumer
right well that sounds really simple and
believe me there's nothing in this
business that is rocket science
otherwise I wouldn't be here and there's
nothing you can't overcome it's it's a
common sense business so you know don't
give up if something doesn't work the
first time
um I want to mention Brokers again
because it with that pre-commit program
that UNFI and K require or getting a
chain on board they're incredibly
important um and sometimes you know we
we happen to find for small brands that
the regional Brokers are better than the
national Brokers mostly because they're
going to get more attention um they're
used to working harder I always tell
people that the last guy that had a sell
Budweiser died 20 years ago I mean the
brand sells for itself when you have a
broker and they're used to selling
Clorox bleach and they just put it on
the Shelf when it goes not a big deal
when you need some 10 to1 care in the
beginning especially the regional
Brokers may be better for you um and you
know this there are times where you will
find a tactical broker that does for
example military or that does drug and
they may be good for a oneof or two off
situation uh but in general natural food
is the is the area that we uh recommend
Brokers
for and Distributors and retailers need
to be sold um and you have to put your
presentation into their psyche okay when
we put together presentations we meaning
collectively we all want to sell right
we're telling everybody our features and
our benefits and why they should buy
it that's good but Distributors don't
really care they want to know what's in
it for me how am I going to make more
money if I have 10,000 ft of of
warehouse space and I have no more room
I have to eliminate something in order
to take your product why should I take
your product as opposed to the 40 other
products that we just got the other day
what's in it for them what is your
program you know what is your price to
them what is your promotion what is your
incentive do you have an exclusive
contract that you're willing to offer
them Etc so that's a big thing when you
when you create your distributor
presentation it's what's in it for me
when you create your retailer
presentation yes more features and
benefits but you're still talking about
what's in it for me cuz as fin night
space um too often people try to sell
their products to Distributors and
retailers like they would consumers well
you're three steps away from any
consumer ever seeing your brand you've
got to get the distributor to do his job
you've got to get the retailer to do
their job and then you get to the
consumer so think about how you're going
to get past the first
two the beverage industry is essentially
UPS and FedEx and what I mean by that is
UPS has a lot of brown trucks that run
around and they deliver they do an
amazing job of delivering could you
imagine if they had to sell
something most Distributors don't have
time to sell they have a huge when I was
so when I was coming up I'll never
forget a conversation with Philadelphia
Coca-Cola and they said we are not going
to go over 100
skus just no matter what we do we're
going to make sure that we're under 100
skus fast forward 20 years there's
probably 500 skus in that company so
there's a lot of proliferation they
don't have the time to sell every single
product and you'll see that they focus
on the things that uh they focus on the
path of lease
resistance so be prepared that you or a
broker or a brand management company or
a combination of all of that are going
to have to do the sales even after you
get the distributor to yes even after
you give them a great program even after
you give the salespeople a super
incentive program after you've given
free cases to the stores to get
in but they will not sell your product
in the beginning now when you get to a
point of what I would call critical mass
and in a big Market I would say critical
mass is about 5,000 cases a month when
you get to that level all of a sudden
the distributor becomes more interested
they're more focused on your brand
because now they believe if gee if these
guys got us 5,000 cases a month I can
get 30,000 cases a month now I just have
to rejigger the tools
and but you have to really be prepared
to uh sell the product to train each
individual salesperson to incentivize
all the salese uh to work with them you
know more often than not we we I hear
stories that they sell a product to a
distrib
and the owner of the company never goes
into the street how are you going to
know what's going on how are you going
to know what's going to what's what's
good and what's bad what what's getting
you results and what isn't if you're
just relying on information that you're
hearing from the field you've got to go
see it at least one day two days when
you kick off a
distributor um and you have to
merchandise your best accounts uh it's
really important it sounds crazy um
going back years when I was at Nantucket
nectar's we had accounts that were by
our office in Cambridge
Massachusetts and you would think there
we go and um you know you would think
that there was an army of employees at
ncka nect resetting every shelf in
Boston we I think had eight people in
Boston like it wasn't a ton of people
but we made sure that we got to the
right accounts and we merchandised them
and we did the the right things
right um and success breeds more success
and failure breeds more
failure please do yourself a favor and
I'll talk about this a little bit later
do not look for the home run in this
business there are very few home runs we
did liquid death first three months of
selling liquid death was pulling teeth
people telling me I'm not putting death
on my truck and then six months later
they would forget that we present it to
them that why'd you go to the other guy
you told me
no so you know you you've got to try and
breed success stories take those success
stories from a 30 store chain bring it
to a larger chain and tell them what you
did how you achieved it Etc but you've
got to create your own success stories
you've got to create your own uh case
studies so what margins do Distributors
and retailers work on it's kind of all
over the board but I would say on
average uh a DSD distributor is going to
make 33%
margin and you know there is a
distributor in New York probably the
best distributor they work on about 40%
margin um it it gets very difficult to
make money when you're selling to some
of these bigger compan uh bigger
Distributors UNFI and Khe typically work
on 25 to 32% margin excluding key
accounts like Whole Foods or sprouts for
example where they work on 8 to
12% and you have to be prepared to have
a lot of Bill backs coming in from your
distributor from UNFI and from any
distributor in general traditionally
superar supermarkets work on a 30 to 35%
margin uh convenience stores usually 40
to
45% typically drug chains are 45 to 50%
but we're seeing a lot more 50% right
now uh Club stores will usually work on
11 to 13 and if you go to a New York
Deli and sell it to them for a dollar
they're going to sell it for $2 don't be
scared everybody else is getting their
price doubled too so it it's just the
reality what are slotting fees and
should I pay it well a slotting fee is
basically a money that you pay to a
supermarket chain for the luxury of
doing business with them the only thing
it gets
you is the Shelf space it doesn't even
get you on the Shelf we once had Safeway
National and uh we had distribution 18%
of the stores and went to the buyer and
said hey man we need help you you know
we're only in 18% of the stores and his
reaction was that's your problem you go
deal with it after we've paid all the
money for slotting and and everything
else that we invested in so you know you
do have to pay slotting it is a reality
there are people like we worked with
Matt from chlorophyll Brands and he was
really good about saying no you have to
be in a position to say no when it's not
the right chain if you have an upscale
product and you're going to Weg Wegman's
does not charge slotting but if Wegman's
wanted slotting for an upscale type
product it's probably worth doing if
Fairway wanted slotting it's probably
worth doing at the same time if you are
an expensive item and you're trying to
go to Dollar Stores you're going to fail
well I mean you're not going to fail
there's a good chance that you're going
to fail and you're going to have more
failure than successes okay so pick your
accounts
wisely um
let's see uh this is the money by the
way that the supermarket makes they
don't they don't make any money anymore
from selling you know products they if
you look there's very few people that
are employed by the supermarket chain in
the store in fact if you look at the
checkout aisles they're self checkout
now um the Brokers are stocking the
shelves the vendors are stocking the
shelves and they're making money on
these slotting
fees and you know again convenience
stores also have slotting fees but they
will uh they'll have just like a flatter
fee per shelf you can pay between if
you're in the energy category you can
pay $350 to
$500 per store per shelf in the
convenience store Channel think about
how that adds up really
quickly so if you had a supermarket
chain of let's say
2700 stores and you had four SKS be
prepared to either write a check or have
them deduct from your invoice
$220,000 obviously the the more stores
they have the more expensive it is
Walmart does not have a slotting
slotting policy Wegman's does not have a
slotting policy Walmart does not have
I'm sorry uh Publix does not have a
slotting policy so you don't have to pay
for slotting but it's a lot harder to
get in there okay they're much more
selective independent accounts
the the accounts that you're going to
see in the New York City Market for
example in a California Market they are
the bread and butter of beginning a
beverage
distribution program you have to get
these Independents if you get these
Independents the the other big guys will
eventually come on board
okay uh the questions you need to ask is
this the right account for my brand
Wegman yes some Kroger no you have to
think about how am I going to make sure
that I'm in every Kroger location is the
are the demographics of every Kroger
location uh consistent with what I'm
trying to accomplish with my brand if
you find that 80% of the stores don't
have the same demographics as your brand
don't waste your time because you're not
going to unless you have a chain that
will say I'll start like for example
take HB in Texas HB will say all right
I'm going to put you in my 50 best
stores and in 6 months we're going to
come back and if it's doing well we'll
put you in another 50 stores and they
keep doing that until there's a
diminished point of return they're very
forward thinking with that other chains
go through phases used to be Kroger
would do the same thing now they want
ubiquitous distribution in every store
so it's really really uh different uh
interesting if you pay for slotting in a
chain that has poor demographics in 50%
of the stores are you making a mistake
and the answer is yes because if you
have to pay for those 50% of the stores
that you pretty much know you're not
going to sell in you're just wasting
your time and money um can I pay for
slotting uh just for the better chains
and just for the stores that my pran
will go into the answer is yes but you
have to be selective you have to learn
to say no respect ful and you have to
follow the Paro principle 80% of your
sales is going to come from 20% of your
stores 80% of your sales will come from
20% of your
Distributors it's a fact I mean it's the
one fact in the business that I think
you transfers from Brand to
Brand enough money to survive I'm not
going to go through this but as you're
going to
see you can go through a couple million
dollars very quickly in this business so
you have to spend it right there are
Brands like liquid death which we did 18
months with it kind of sounds like a
jail term um they they've raised $200
million so far so that's a lot easier we
work with Kylie Jenner on her glow
beverages they have access to Capital
when you're a small company don't think
you're going to hit a home run overnight
it's going to take time the longer you
can keep your product on the Shelf the
greater chance you have of success
seeding but that takes Runway that takes
you know money to drive the business and
if I haven't already mentioned it 90% of
people in the startup beverage business
do not make any money on product that
they sell you're going to lose money
when you start to think about how many
people do you have in your company and
marketing costs and everything else the
real opportunity from 90% of the
beverage companies is on the exit so
again liquid death has raised about $200
million they're also uh probably valued
at about $800 million right now so
they're going to exit for a lot of money
definitely worth the $200 million that's
been invested so far um I am not going
to go through this because I'm running
out of time but this is uh this is what
companies look for when they are looking
to acquire you so let me just say that
anything that you need from this whether
it's a question we also have a gloser of
terms that we give out for free um
anything you have you want a copy of the
presentation you want me to walk you
through the presentation again one onone
fine just shoot me an email at info@
Cascadia foodbev and we'll spend more
time going through the details of each
of the slides if you have questions so
thank
you
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